Introduction (521.1 to 521.2)
521.1
Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence.
521.2
Family or personal relationships with client personnel might create a self-interest, familiarity or intimidation threat. This section sets out specific requirements and application material relevant to applying the conceptual framework in such circumstances.
Requirements and Application Material
General
(521.3 A1 to 521.3 A2)
521.3 A1
A self-interest, familiarity or intimidation threat might be created by family and personal relationships between an audit team member and a director or officer or, depending on their role, certain employees of the audit client.
521.3 A2
Factors that are relevant in evaluating the level of such threats include:
The individual's responsibilities on the audit team.
The role of the family member or other individual within the client, and the closeness of the relationship.
Immediate Family of an Audit Team Member
(521.4 A1 to R521.5)
521.4 A1
A self-interest, familiarity or intimidation threat is created when an immediate family member of an audit team member is an employee in a position to exert significant influence over the client's financial position, financial performance or cash flows.
521.4 A2
Factors that are relevant in evaluating the level of such threats include:
521.4 A3
An example of an action that might eliminate such a self-interest, familiarity or intimidation threat is removing the individual from the audit team.
521.4 A4
An example of an action that might be a safeguard to address such a self-interest, familiarity or intimidation threat is structuring the responsibilities of the audit team so that the audit team member does not deal with matters that are within the responsibility of the immediate family member.
R521.5
An individual shall not participate as an audit team member when any of that individual's immediate family:
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Is a director or officer of the audit client;
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Is an employee in a position to exert significant influence over the preparation of the client's accounting records or the financial statements on which the firm will express an opinion; or
-
Was in such position during any period covered by the engagement or the financial statements.
Close Family of an Audit Team Member (521.6 A1 to 521.6 A4)
521.6 A1
A self-interest, familiarity or intimidation threat is created when a close family member of an audit team member is:
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A director or officer of the audit client; or
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An employee in a position to exert significant influence over the preparation of the client's accounting records or the financial statements on which the firm will express an opinion.
521.6 A2
Factors that are relevant in evaluating the level of such threats include:
-
The nature of the relationship between the audit team member and the close family member.
-
The position held by the close family member.
-
The role of the audit team member.
521.6 A3
An example of an action that might eliminate such a self-interest, familiarity or intimidation threat is removing the individual from the audit team.
521.6 A4
An example of an action that might be a safeguard to address such a self-interest, familiarity or intimidation threat is structuring the responsibilities of the audit team so that the audit team member does not deal with matters that are within the responsibility of the close family member.
Other Close Relationships of an Audit Team Member (R521.7 to 521.7 A3)
R521.7
An audit team member shall consult in accordance with firm policies and procedures if the audit team member has a close relationship with an individual who is not an immediate or close family member, but who is:
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A director or officer of the audit client; or
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An employee in a position to exert significant influence over the preparation of the client's accounting records or the financial statements on which the firm will express an opinion.
521.7 A1
Factors that are relevant in evaluating the level of a self-interest, familiarity or intimidation threat created by such a relationship include:
The nature of the relationship between the individual and the audit team member.
The position the individual holds with the client.
The role of the audit team member.
521.7 A2
An example of an action that might eliminate such a self-interest, familiarity or intimidation threat is removing the individual from the audit team.
521.7 A3
An example of an action that might be a safeguard to address such a self-interest, familiarity or intimidation threat is structuring the responsibilities of the audit team so that the audit team member does not deal with matters that are within the responsibility of the individual with whom the audit team member has a close relationship.
Relationships of Partners and Employees of the Firm (R521.8 to 521.8 A2)
R521.8
Partners and employees of the firm shall consult in accordance with firm policies and procedures if they are aware of a personal or family relationship between:
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A partner or employee of the firm or network firm who is not an audit team member; and
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A director or officer of the audit client or an employee of the audit client in a position to exert significant influence over the preparation of the client's accounting records or the financial statements on which the firm will express an opinion.
521.8 A1
Factors that are relevant in evaluating the level of a self-interest, familiarity or intimidation threat created by such a relationship include:
The nature of the relationship between the partner or employee of the firm and the director or officer or employee of the client.
The degree of interaction of the partner or employee of the firm with the audit team.
The position of the partner or employee within the firm.
The position the individual holds with the client.
521.8 A2
Examples of actions that might be safeguards to address such self-interest, familiarity or intimidation threats include:
Building Blocks Approach
Complying with Part 4A requires knowing, understanding and applying:
- Part 1 - The fundamental principles and the conceptual framework
- Part 2 – Part 2 is also applicable to individual professional accountants in public practice (PAPPs) when performing professional activities pursuant to their relationship with the firm
- Part 3 - All of the relevant provisions set out in a particular section (Each 3xx section is also linked to 300)
- Part 4A – All the relevant provisions set out in a particular section (Each 4xx, 5xx, 6xx and 8xx section is also linked to 300 and 400)
- All the relevant provisions of a particular section (“general” and “all audit clients” together with additional specific provisions under sub-headings “audit clients that are Public Interest Entities” or “Audit Clients that are not Public Interest Entities” together with any additional provisions set out in any relevant subsection).
Alert: Part 4A applies to both audit and review engagements. The terms “audit,” “audit team,” “audit engagement,” “audit client,” and “audit report” apply equally to review, review team, review engagement, review client, and review engagement report.
The IESBA has applied a building blocks approach in establishing the structure of the Code. The conceptual framework set out in Part 1, Section 120, applies to all professional accountants (PAs) and is not repeated in subsequent Parts or sections but is expected to be applied by all PAs in the conduct of professional activities.
As an illustration of the building blocks approach:
- In all situations, paragraphs 120.8 A1 to 120.8 A2 of the conceptual framework identify conditions, policies and procedures that might be “factors relevant to evaluating the level of threats.”
- Incremental application material for evaluating threats is provided for PAPPs in paragraphs 300.7 A1 to 300.7 A2.
- Incremental context-specific factors are then included in each section and in each Part of the Code to emphasize the factors that are relevant to evaluating the level of the threat created by the specific circumstance. For instance, in relation to threats created by providing non-assurance services (NAS) to audit clients, paragraphs 600.5 A1 to 600.5 A4 include examples of factors that are relevant to all types of NAS that might be provided. Additionally, within each subsection of Section 600, as appropriate, there are additional examples of factors that also apply based on the specific type of NAS.
Building Blocks Approach
Complying with Part 4A requires knowing, understanding and applying:
- Part 1 - The fundamental principles and the conceptual framework
- Part 2 – Part 2 is also applicable to individual professional accountants in public practice (PAPPs) when performing professional activities pursuant to their relationship with the firm
- Part 3 - All of the relevant provisions set out in a particular section (Each 3xx section is also linked to 300)
- Part 4A – All the relevant provisions set out in a particular section (Each 4xx, 5xx, 6xx and 8xx section is also linked to 300 and 400)
- All the relevant provisions of a particular section (“general” and “all audit clients” together with additional specific provisions under sub-headings “audit clients that are Public Interest Entities” or “Audit Clients that are not Public Interest Entities” together with any additional provisions set out in any relevant subsection).
Alert: Part 4A applies to both audit and review engagements. The terms “audit,” “audit team,” “audit engagement,” “audit client,” and “audit report” apply equally to review, review team, review engagement, review client, and review engagement report.
The IESBA has applied a building blocks approach in establishing the structure of the Code. The conceptual framework set out in Part 1, Section 120, applies to all professional accountants (PAs) and is not repeated in subsequent Parts or sections but is expected to be applied by all PAs in the conduct of professional activities.
As an illustration of the building blocks approach:
- In all situations, paragraphs 120.8 A1 to 120.8 A2 of the conceptual framework identify conditions, policies and procedures that might be “factors relevant to evaluating the level of threats.”
- Incremental application material for evaluating threats is provided for PAPPs in paragraphs 300.7 A1 to 300.7 A2.
- Incremental context-specific factors are then included in each section and in each Part of the Code to emphasize the factors that are relevant to evaluating the level of the threat created by the specific circumstance. For instance, in relation to threats created by providing non-assurance services (NAS) to audit clients, paragraphs 600.5 A1 to 600.5 A4 include examples of factors that are relevant to all types of NAS that might be provided. Additionally, within each subsection of Section 600, as appropriate, there are additional examples of factors that also apply based on the specific type of NAS.